7 July 2022
Staying ahead of the curve on regulatory and tax compliance is a never-ending task for companies.
To help you keep on top of recent developments, here is our third quarterly Worldwide Wrap-Up of 2022, with some of the most recent changes that should be on your radar. We have summarised these topics briefly in this alert, however they will be covered in more detail along with other recent developments on our 13 July webinar.
Canada - CRA considering reform of tax obligations for RSUs
In July 2021, the 50% tax reduction benefit available to qualified employee stock options was capped at $200,000. Under the new rules, where an option does not qualify for the benefit the company may be able to claim a corporation tax deduction for those non-qualified securities. The employer is required to report any non-qualified securities by filing the new Schedule 59 return.
Currently, the reporting obligation extends to RSUs and other rights which do not qualify for the 50% tax deduction. One consequence is that such rights count towards the $200,000 annual cap even though the employee may not receive a tax break.
The Canadian authorities have announced that this point is under review and that it is considering potential remedial measures.
A clarification in this area would be welcomed. It is likely that the tax authority did not intend that the new reporting would capture RSUs and other types of share plans where the employee is not entitled to the 50% tax deduction and it is good to see swift acknowledgement that the position needs to be clarified. This issue will be particularly important for those businesses operating both market value options (which can potentially benefit from the 50% tax deduction) and also RSUs (which cannot benefit from the deduction but may still be restricting the availability of the benefit by 'using up' some of the employees' allowance).
Poland - to file or not to file?
Currently, offers to two or more people in Poland require a securities notification to the Polish Financial Supervision Authority (KNF) within 14 days of allocation of the securities. This has been burdensome for many plan operators, particularly those with only low numbers of participants in Poland where the administrative requirements might be disproportionate. Helpfully the KNF has recently confirmed that options do not need to be registered, provided they qualify as "options" for the purposes of Polish law.
This will come as a relief to companies who offer options and have currently been subject to the registration requirements in Poland, particularly as options can be additionally challenging to report because of the potential for sporadic exercise dates and longer exercise windows. For some time, there have been questions around the offer of conditional awards for nil-consideration and whether such awards should be exempt from the filing - some might even argue that the case is even stronger than for options. Could this mean further award types fall away in the future? Watch this space!
Serbia - new securities law share plan exclusion
Good news! A new Capital Markets Act (due to come into force 6 January 2023) excludes employee share plans from the requirement to prepare a prospectus when making a public offering in Serbia.
Currently, employee share plans are not regulated, making an offer of shares to employees subject to the (sometimes conflicting) opinions of the Serbian Exchange Commission (SEC). As a result, companies are currently recommended to seek an official opinion from the SEC, with the likely outcome being that the SEC would take the view that an incentive plan is considered a public offer and, as such, subject to the prospectus requirements.
The new legislation will remove the uncertainty as no prospectus will be required.
As always, we are thrilled when securities laws have a clear path for employee share plans. Although the new Act does not come into force until January 2023, local counsel expect that the SEC might take a more lenient approach for 2022 offerings.
Sri Lanka - FX restrictions likely to continue
In 2021 foreign exchange restrictions were introduced in Sri Lanka which limited the ability to make outward remittances. The restrictions have been extended twice and were due to end on 2 July. Although no official update or extension has been published (at the time of writing!), the Foreign Exchange Department have informally confirmed the intention to extend the restrictions past this date.
Sadly, the current economic crisis in Sri Lanka means that, although an official publication of an extension might be delayed, the lifting of the restrictions seems unlikely. Counsel has advised us that companies should proceed on the basis that the restrictions will be extended, and those offering plans involving outward remittances will likely still face practical issues with getting money out of Sri Lanka.
UK - bonuses to return for Sharesave plans?
Under a UK tax-advantaged SAYE plan, individuals must enter into a linked savings arrangement with an authorised savings carried, which may include a tax-free 'bonus' (essentially interest payable at the end of the savings contract) at a specified rate. This bonus rate has been set at nil for a number of years (since 2014), making the question of bonuses largely irrelevant in practice. However, the UK's tax authority (HMRC) has recently announced they are reviewing (with the intention of simplifying) the mechanism for calculating the SAYE bonus rate. Many have speculated whether this simplification process could be the first step on the road to the return of SAYE bonuses.
The intention of SAYE bonus rates is to ensure that SAYE savings contracts are broadly aligned with wider market interest rates. With the recent increases to the Bank of England base rate of interest, it is not difficult to imagine that HMRC may soon reintroduce a bonus rate that is greater than zero. A simplification in the bonus rate calculation process is always helpful, however this could of course swing both ways - there is a possibility that the simplification of the calculation process could result in a lower bonus rate than would have been calculated under the current mechanism. HMRC have said they will provide an update by the end of summer - so watch this space!
Compliance is key! Remember to be ahead of the game with global reporting deadlines. Coming in the next few days, weeks and months:
Australia - ESS statement (employees) - 14 July & ESS report (tax office) - 14 August
China - Shanghai SAFE Q3 filing - 10 October
India - quarterly tax certificate - 31 July
Saudi Arabia - quarterly filing to CMA - 31 October
If you need this information for other jurisdictions not shown above, or if you need any assistance with any global filings, please do get in touch with us.
Global tax rates
We will take a look at any tax-rate changes in the 10 countries starting their tax year in July.
You may think that the rush of the tax-rate changes is limited to the first couple of months at the beginning of the calendar year - but some countries start their tax year in July (or even at other points in the year)! This mid-summer wrap-up will cover a few start-of-the-tax-year updates.
if you have any questions, or would like to discuss any element of legal and tax compliance for your global incentive plans, do get in touch - we would be delighted to help!
Sarah, Sally and Emilie